Gujarat H.C : Whether the Tribunal has erred in law in not following settled legal position and established law on the said subject of rules, practice and procedure of evidence, natural justice and fairplay while confirming the addition of Rs. 1,40,000 relying upon ‘inadmissible evidence’ and ignoring ‘undisputed evidence’ adduced by the assessee ?

High Court Of Gujarat

Silk Museum vs. CIT

Sections 69, 256

Asst. Year 1981-82

R.K. Abichandani & Kundan Singh, JJ.

IT Ref. No. 6 of 1988

23rd April, 2002

Counsel Appeared

R.K. Patel, for the Petitioner : B.B. Naik, for the Respondent

JUDGMENT

R.K. ABICHANDANI, J. :

The Tribunal, Ahmedabad Bench “A”, has referred under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the “said Act”), the following question for the opinion of this Court : “Whether the Tribunal has erred in law in not following settled legal position and established law on the said subject of rules, practice and procedure of evidence, natural justice and fairplay while confirming the addition of Rs. 1,40,000 relying upon ‘inadmissible evidence’ and ignoring ‘undisputed evidence’ adduced by the assessee ?”

2. The matter pertains to the asst. yr. 1981-82. The assessee was a partnership firm dealing in sarees at Rajkot and doing its business since 1st Nov., 1979. The assessee filed return of its income on 17th July, 1981. During the assessment proceedings, the Department came in possession of some information to the effect that for acquiring the business premises on rent, the assessee-firm had paid certain amount by way of “pagri”. As recorded in para. 5 of the draft assessment order, the premises occupied by the assessee were previously in possession of M/s Mansukh Stores. Pursuant to the report made by Shri R.J. Vyas, Inspector of Income-tax, which revealed that certain amount was received by the landlord from the assessee, the ITO issued summons under s. 131 to the landlord Shri Haresh Jadavji Parekh and recorded his statement on 26th March, 1984, as noted in para. 5 of the assessment order. The report of Shri R.J. Vyas was placed on record. We are emphasizing this aspect because earlier at no point of time till the Tribunal has decided the matter was it ever urged that the copy of the report of Mr. Vyas was not given to the assessee. However, even that report will pale into insignificance because of the fact that the authorities have not based their conclusions on that report but have relied upon the statement of one Bhupatrai C. Doshi who was a partner in M/s Mansukh Stores along with his wife Vidyaben who had vacated the premises after occupying it for nearly 25 years and as per which statement, the assessee had given Rs. 1 lakh for handing over possession of the premises to Vidyaben. There is admission in the statement of Bhupatrai C. Doshi which was recorded by the ITO on 26th March, 1984, that a total amount of Rs. 1,20,000 was received from the assessee, out of which, the amount of Rs. 20,000 was paid by cheque towards cost of furniture. Shri Doshi had also stated that a sum of Rs. 40,000 was given by the assessee to the landlord for the premises. At the request of the assessee, copies of the statements of Harish Jadav Parekh and Bhupatrai C. Doshi which were recorded by the ITO on 26th March, 1984, were furnished to the assessee as recorded in para 8 of the said draft order. The ITO noted that the statement of Shri Doshi that a cheque of Rs. 20,000 was given by the assessee towards furniture was borne out from the assessee’s own books of account, in which it was stated that a sum of Rs. 20,000 was paid by cheque to Smt. Vidyaben B. Doshi of Mansukh Stores for wooden cuboards, “Gadi”, Takkia”, etc. The ITO, therefore, added Rs. 1 lakh paid by the assessee to Smt. Vidyaben Doshi and Rs. 40,000 paid to Harish Jadavji Parekh as the unaccounted income of the assessee, since it was not entered in the books of account of the assessee.

2.1. Against the said draft assessment order, dt. 29th March, 1984, the only objection that was raised by the assessee in its communication dt. 30th March, 1984, at Annexure “E” to the paper-book was that no “pagri” was paid by the assessee, and therefore, it objected to the inclusion of Rs. 1,40,000 on that ground. The IAC by his directions dt. 19th Sept., 1984, issued under s. 144B of the said Act (at Annexure “H” in the paper book), noted that as per its earlier directions, the ITO had given an opportunity to the assessee to cross-examine the witnesses. He also took note of the fact that the affidavit of Smt. Vidyaben B. Doshi was being produced along with written submissions filed before him on 19th June, 1984. On the basis of the record, he observed that the additions made by the ITO in the draft order were justificable and no interference was called for. The ITO was, therefore, directed to make a final assessment order in the matter. Accordingly, the ITO made the assessment order on 20th Sept., 1984, adding the amount of Rs. 1,40,000 in the income of the assessee as the amount paid by way of “pagri” which did not find place in the books of account of the assessee. As discussed in para. 9 of his order, the ITO finding that the version of Shri Doshi about having received the amount of Rs. 1,20,000, out of which, Rs. 30,000 was received by way of cheque from the assessee was reliable, came to the conclusion that the said amount was includible in the total income of the assessee being the amount paid out of the books from the income from undisclosed sources.

The CIT(A) considered this item in paras. 4 and 5 of its order, dt. 21st March 1984, in the appeal which was preferred by the assessee and deleted the same by observing that the evidence of Bhupatrai C. Doshi was only hearsay and the actual tenant Smt. Vidyaben B. Doshi has denied having received any “pagri” in her affidavit filed before the IAC.

The Revenue appealed against the order of the CIT(A) before the Tribunal and the Tribunal on a detailed appreciation of evidence on record held that the assessee-firm had in fact paid Rs. 40,000 to the landlord Shri Parekh and Rs. 1 lakh to the outgoing tenant Smt. Vidyaben by way of “pagri” and that the said amount of Rs. 1,40,000 was paid out of the books from the income derived from undisclosed sources. The order of the CIT(A) was, therefore, set aside on this count and the order of the ITO was restored.

The learned counsel for the assessee argued before us that the finding of the Tribunal was vitiated and it was unsustainable because it was based on inadmissible evidence. It was contended that a copy of the report of the Income-tax Inspector was not furnished to the assessee, and therefore, it could not have been relied upon. It was also contended that the affidavit of Vidyaben B Doshi had gone unchallenged and, according to her, no “pagri” was paid to her by the assessee. According to the learned counsel, the authorities were bound to rely on this affidavit. It was then argued that the provisions of s. 69 of the said Act were not applicable to the assessee-firm because the firm was constituted under the partnership deed dt. 23rd Nov., 1979 and had commenced its business from 1st Nov., 1979. Therefore, the amount in question could not have been considered as investment from the income in the first year of the business of the assessee. It was argued that even though this question did not arise from the order of the Tribunal we should examine it because it was a pure question of law going to the root of the matter.

6. In support of his contentions, the learned counsel for the assessee relied upon the following decisions : (A) The decision of the Supreme Court in Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 713 (SC) : TC 42R.1272, was cited to point out that it was held therein that before the IT authorities could rely upon the letter, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. It was held that the statements of the manager in the letter were based on hearsay and that the Department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. (B) The decision of the Supreme Court in CIT vs. Smt. P.K. Noorjahan (1999) 155 CTR (SC) 509 : (1999) 237 ITR 570 (SC) was cited for the proposition that the intention of Parliament for enacting s. 69 of the said Act was to confer a discretion on the ITO in the matter of treating source of investment which has not been satisfactorily explained by

the assessee as the income of the assessee, and the ITO was not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. It was held that the question whether the source of investment should be treated as income or not under s. 69 of the Act has to be considered in the light of the facts of each case. (C) The decision of the Supreme Court in Sona Builders vs. Union of India & Ors. (2001) 170 CTR (SC) 180 : (2002) 251 ITR 197 (SC), was cited to point not that in a case where no copy of the document of sale instance was furnished along with the notice or at any time whatever, it was held that there was a gross breach of principles of natural justice, because, adequate opportunity to meet the case made out in the notice was not given to the appellant. In that case, the Appropriate Authority held that the apparent consideration of the transaction between the appellant and the transferor was substantially low as compared to the value arrived at on the basis of sale instance, duly adjusted, passed an order for compulsory purchase of the property by the Central Government. The Supreme Court held that on two counts there has been gross breach of the principles of natural justice and set aside the order on the ground of failure to act in conformity with the principles of natural justice. (D) The decision of this Court in Glass Lines Equipments Co. Ltd. vs. CIT (2001) 170 CTR (Guj) 470 : (2002) 253 ITR 454 (Guj), was cited to point out that in a case wherein none of the appellate orders was there any discussion in relation to part of the affidavit in which the assessee-company had made a positive averment to the effect that all other items of expenditure were allowable and there was no indication whatsoever that the Tribunal was even aware of the existence of the affidavit which was on record, it was held that it would not be open to the Revenue to challenge the correctness of the statement made by the dependent in the affidavit, because, none of the authorities considered it necessary to cross-examine the deponent with reference to such statement.

7. The learned standing counsel for the Revenue argued that nowhere uptil now was it ever contended that the copy of the report of the Income-tax Inspector was not given to the assessee. He submitted that if the assessee had not received the copy and wanted to rely upon it, he would have surely demanded the same, since the copy was already on record. The presumption therefore was, that the assessee was having such copy. In his letter, only the statements of the witnesses were asked for, which were duly furnished to the assessee. Moreover, the reliance placed by the authority was on the statement of the material witness and the report was not the basis for the conclusions reached by the ITO or the Tribunal which restored the ITO’s order. It was submitted that the Tribunal’s findings were findings of fact based on record and the assessee cannot require this Court toreappreciate the evidence in this reference. It was then argued that the contention now canvassed that since it was the first year of business of the assessee, the income in question could not be treated as undisclosed income of the assessee used in investment, was never raised before any authority including the Tribunal and the said question does not arise from the order of the Tribunal and since the said question does not arise from the order of the Tribunal, this Court cannot go into it.

7.1. In support of his contention, the learned standing counsel relied upon the following decisions : (a) The decision of the Supreme Court in C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC) : TC 54R.113, was cited for the proposition that it was open to the ITO to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, assessee must be informed of the material and must be given an adequate opportunity of explaining it. (b) The decision of the Supreme Court in CIT vs. Smt. Anusuya Devi (1968) 68 ITR 750 (SC) : TC 55R.809 was cited for the well settled proposition that the High Court could decline to answer a question of law which does not arise out of the order of the Tribunal. It was held that the High Court was not bound to advise the Tribunal on a question which did not arise out of the order of the Tribunal merely because the High Court called upon the Tribunal to state a case on that question. (c) The decision of the Supreme Court in Lakshmiratan Cotton Mills Co. Ltd. vs. CIT (1969) 73 ITR 634 (SC) : TC 55R.852, was also cited for the proposition that the High Court could decline to answer the question referred pursuant to its direction if it did not arise out of the order of the Tribunal. (d) The decision of this Court in CIT vs. C. Shantilal & Co. (1982) 28 CTR (Guj) 165 : (1982) 136 ITR 522 (Guj) : TC 54R.490, was relied upon for the proposition that no question can be referred to the High Court unless it arises out of the order of the Tribunal. This Court relied upon various decisions of the apex Court pointing out that this was a settled legal position. It was held that since the Tribunal was not called upon to consider the question of the validity of the penalty in the light of the provisions of ss. 271(2), the Tribunal had no occasion to deal with such an argument. The question of applicability of s. 271(2) could not also be said to arise out of the order of the Tribunal. (e) The decision of the Supreme Court in M.B. Abdulla vs. CIT (1990) 82 CTR (SC) 362 : (1990) 183 ITR 96 (SC) : TC 54R.503, was cited to point out that the High Court rejected the application for leave to appeal against an order of the Tribunal refusing to make a reference under s. 256(1) of the said Act on the ground that the question did not arise out of the order of the Tribunal.

8. From the facts which have been narrated in the earlier part of the judgment, it would at once become clear that the Tribunal has placed reliance upon the statement of Bhupatrai C. Doshi. The assessee was given an opportunity to cross-examine that witness and it transpires from the statement of this witness that the assessee had paid Rs. 1 lakh to his wife Vidyaben for handing over the possession of the ship premises. An amount of Rs. 20,000 was also given by the assessee by cheque to them towards the cost of cupboard, ‘Gadi’ ‘Takkia’ etc. We have gone through the statement of Shri Doshi and we are fully satisfied therefrom that there was a categorical admission by Shri Doshi both in his earlier statement and in the cross-examination about the amount of Rs. 1 lakh having been paid by the assessee to his wife in lieu of handing over the possession of the premises in question. His statement that Rs. 20,000 were paid by cheque by the assessee was borne out from the books of account of the assessee as held by the Tribunal. The Tribunal also took note of the fact that the shop in question was situated in one of the busiest localities in the city of Rajkot and the assessee had obtained the possession of the shop on payment of the amounts admitted by Mr. Doshi. The Tribunal observed that the landlord in his statement had admitted that earlier tenant was in possession since 25 to 30 years on a monthly rent of only Rs. 25, and therefore, there was nothing unusual in the said payment having been given to the outgoing tenant. The Tribunal held that the material on record inspired full confidence for reaching the conclusion that the amount in question was paid by way of “pagri”. Mr. Doshi has stated that he was told by his wife Vidyaben that the amount of Rs. 1,20,000 was paid by the assessee. There could not be more authentic evidence forthcoming than the evidence of the husband who would be having knowledge of the fact of Vidyaben having received Rs. 1,20,000 from the assessee for vacating the shop premises occupied by their firm for 25 to 30 years. The affidavit of Vidyaben which is belatedly produced by the assessee before the IAC of IT is obviously an afterthought to bolster up the case of the assessee and cannot dislodge the reliable version of Bhupatrai C. Doshi. All these are in realm of appreciation of evidence and we do not find any perversity in the conclusions reached by the Tribunal which are based on the material on record.

The contention that report of the Income-tax Inspector Mr. Vyas was not supplied to the assessee has no basis. There is nothing on record to indicate that a copy of the report was not given to the assessee and the argument is darted for the first time before this Court. It is clear from the draft order of the ITO that a copy of the report was placed on record. If the assessee had not been supplied with a copy of that report, surely it would have been asked for while seeking copies of the statements of witnesses which were duly furnished to the assessee pursuant to its letter. No grievance was made even before the Tribunal about non-supply of copy of the report of the Inspector. The contention that the copy of the report was not made available to the assessee is, therefore, devoid of any substance.

The argument which is now put up for the first time that the amount in question could not have been added in the income of the assessee-firm because it was the first year of its business cannot at all be countenanced for the simple reason that no such contention was ever raised and it cannot be allowed to be raised for the first time since the Tribunal had no occasion to decide such question, and therefore, it does not arise from the order of the Tribunal. We have already referred to the decisions of the Supreme Court which clearly lay down that a question which does not arise from the order of the Tribunal cannot be opined upon by this Court. This position was settled long back by the Supreme Court in the case of CIT vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC) : TC 54R.114 in which it was held that the jurisdiction of the High Court in a reference under s. 66 of the IT Act, 1922, is a special one, different from its ordinary jurisdiction as a civil Court. The High Court hearing a reference under that section did not exercise any appellate, revisional or supervisory jurisdiction over the Tribunal but acted purely in an advisory capacity on a reference which properly came before it under s. 66(1) and (2) of the Act of 1922 [the provisions corresponded to s. 256(1) and (2) of the Act of 1961]. It was held that it is of the essence of such a jurisdiction that the Court can decide only questions which are referred to it and not any other questions. When a question of law is neither raised before the Tribunal nor considered by it, it would not be a question arising out of its order. It was held that all that s. 66(1) required was that the question of law which was referred to the Court for decision and which the Court is to decide must be the question which was in issue before the Tribunal. We do not find it necessary to dilate on the point any further and hold that it is not open for the assessee to raise this contention for the first time before this Court since it does not arise from the order of the

Tribunal.

In the above view of the matter, we hold that the Tribunal had not committed and error while confirming the addition of Rs. 1,40,000 as the income of the assessee as was ordered by the ITO and the question referred to us is answered against the assessee and in favour of the Revenue. The reference stands disposed of accordingly with no order as to costs.

[Citation : 257 ITR 22]

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